tbi-20210627

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: June 27, 2021

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 001-14543

____________________________________

TrueBlue, Inc.

(Exact name of registrant as specified in its charter)

______________________________________

Washington

91-1287341

(State of incorporation)

(I.R.S. employer identification no.)

1015 A Street, Tacoma, Washington 98402

(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code: (253) 383-9101

______________________________________

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, no par value	TBI	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☐

Accelerated filer

☒

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark if the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of July 12, 2021, there were 35,503,472 shares of the registrant’s common stock outstanding.

TrueBlue, Inc.

Table of Contents


		Page
PART I. FINANCIAL INFORMATION
Item 1.	Consolidated financial statements (unaudited)	3
	Consolidated Balance Sheets	3
	Consolidated Statements of Operations and Comprehensive Income (Loss)	4
	Consolidated Statements of Cash Flows	5
	Notes to consolidated financial statements	6
Item 2.	Management’s discussion and analysis of financial condition and results of operations	14
Item 3.	Quantitative and qualitative disclosures about market risk	30
Item 4.	Controls and procedures	30

PART II. OTHER INFORMATION
Item 1.	Legal proceedings	31
Item 1A.	Risk factors	31
Item 2.	Unregistered sales of equity securities and use of proceeds	38
Item 3.	Defaults upon senior securities	39
Item 4.	Mine safety disclosures	39
Item 5.	Other information	39
Item 6.	Index to exhibits	39

	Signatures	40

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PART I. FINANCIAL INFORMATION


Item 1.			CONSOLIDATED FINANCIAL STATEMENTS

TRUEBLUE, INC.

CONSOLIDATED BALANCE SHEETS

(unaudited)


(in thousands, except par value data)	June 27, 2021		December 27, 2020
ASSETS
Current assets:
Cash and cash equivalents	$	105,234	$	62,507
Accounts receivable, net of allowance of $3,843 and $2,921	292,731		278,343
Prepaid expenses and other current assets	24,439		26,137
Income tax receivable	10,121		11,898
Total current assets	432,525		378,885
Property and equipment, net	82,079		71,734
Restricted cash and investments	224,649		240,534
Deferred income taxes, net	29,371		30,019
Goodwill	94,950		94,873
Intangible assets, net	25,324		28,929
Operating lease right-of-use assets, net	55,316		65,940
Workers’ compensation claims receivable, net	57,194		52,934
Other assets, net	16,660		16,729
Total assets	$	1,018,068	$	980,577
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable and other accrued expenses	$	52,116	$	58,447
Accrued wages and benefits	136,675		122,657

Current portion of workers’ compensation claims reserve	60,032		66,007

Current operating lease liabilities	12,344		13,938
Other current liabilities	13,371		7,918
Total current liabilities	274,538		268,967
Workers’ compensation claims reserve, less current portion	194,863		189,486


Long-term deferred compensation liabilities	27,408		26,361
Long-term operating lease liabilities	52,987		54,797

Other long-term liabilities	3,042		3,776
Total liabilities	552,838		543,387

Commitments and contingencies (Note 6)

Shareholders’ equity:
Preferred stock, $0.131 par value, 20,000 shares authorized; No shares issued and outstanding	—		—
Common stock, no par value, 100,000 shares authorized; 35,510 and 35,493 shares issued and outstanding	1		1
Accumulated other comprehensive loss	(14,338)		(14,828)
Retained earnings	479,567		452,017
Total shareholders’ equity	465,230		437,190
Total liabilities and shareholders’ equity	$	1,018,068	$	980,577

See accompanying notes to consolidated financial statements

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TRUEBLUE, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(unaudited)


	Thirteen weeks ended				Twenty-six weeks ended
(in thousands, except per share data)	June 27, 2021		June 28, 2020		June 27, 2021		June 28, 2020
Revenue from services	$	515,955	$	358,944	$	974,661	$	853,196
Cost of services	379,487		275,719		727,619		643,812
Gross profit	136,468		83,225		247,042		209,384
Selling, general and administrative expense	110,508		97,200		207,909		214,581
Depreciation and amortization	7,017		7,256		13,979		16,350
Goodwill and intangible asset impairment charge	—		—		—		175,189
Income (loss) from operations	18,943		(21,231)		25,154		(196,736)


Interest expense and other income, net	724		(412)		1,299		(149)
Income (loss) before tax expense (benefit)	19,667		(21,643)		26,453		(196,885)
Income tax expense (benefit)	3,783		(13,475)		3,671		(38,223)
Net income (loss)	$	15,884	$	(8,168)	$	22,782	$	(158,662)

Net income (loss) per common share:
Basic	$	0.46	$	(0.23)	$	0.66	$	(4.39)
Diluted	$	0.45	$	(0.23)	$	0.65	$	(4.39)

Weighted average shares outstanding:
Basic	34,818		35,077		34,746		36,166
Diluted	35,352		35,077		35,205		36,166

Other comprehensive income (loss):
Foreign currency translation adjustment	$	(6)	$	2,098	$	490	$	(4,527)
Comprehensive income (loss)	$	15,878	$	(6,070)	$	23,272	$	(163,189)

See accompanying notes to consolidated financial statements

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TRUEBLUE, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)


	Twenty-six weeks ended
(in thousands)	June 27, 2021		June 28, 2020
Cash flows from operating activities:
Net income (loss)	$	22,782	$	(158,662)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization	13,979		16,350
Goodwill and intangible asset impairment charge	—		175,189
Provision for credit losses	2,094		5,923
Stock-based compensation	6,916		4,345
Deferred income taxes	652		(27,049)
Non-cash lease expense	7,853		7,454
Other operating activities	(1,473)		2,669
Changes in operating assets and liabilities:
Accounts receivable	(16,486)		111,803
Income tax receivable	1,103		(7,291)
Operating lease right-of-use asset	6,135		—
Other assets	(2,495)		4,682
Accounts payable and other accrued expenses	(6,952)		(22,197)
Other accrued wages and benefits	11,208		(10,809)
Deferred employer payroll taxes	2,810		15,730
Workers’ compensation claims reserve	(598)		(5,668)
Operating lease liabilities	(6,729)		(7,643)
Other liabilities	6,563		(1,344)
Net cash provided by operating activities	47,362		103,482
Cash flows from investing activities:
Capital expenditures	(19,868)		(11,641)



Purchases of restricted available-for-sale investments	(14)		(1,739)
Sales of restricted available-for-sale investments	452		2,581
Purchases of restricted held-to-maturity investments	—		(11,458)
Maturities of restricted held-to-maturity investments	15,143		16,190

Net cash used in investing activities	(4,287)		(6,067)
Cash flows from financing activities:
Purchases and retirement of common stock	—		(52,346)
Net proceeds from employee stock purchase plans	538		536
Common stock repurchases for taxes upon vesting of restricted stock	(2,686)		(1,956)
Net change in revolving credit facility	—		7,900


Other	(188)		(1,344)
Net cash used in financing activities	(2,336)		(47,210)
Effect of exchange rate changes on cash, cash equivalents and restricted cash	319		(736)
Net change in cash, cash equivalents and restricted cash	41,058		49,469
Cash, cash equivalents and restricted cash, beginning of period	118,612		92,371
Cash, cash equivalents and restricted cash, end of period	$	159,670	$	141,840
Supplemental disclosure of cash flow information:
Cash paid (received) during the period for:
Interest	$	880	$	2,402
Income taxes	1,943		(3,707)
Operating lease liabilities	8,335		8,841
Non-cash transactions:
Property and equipment purchased but not yet paid	1,968		1,189
Right-of-use assets obtained in exchange for new operating lease liabilities	3,162		4,841

See accompanying notes to consolidated financial statements

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Financial statement preparation

The accompanying unaudited consolidated financial statements (“financial statements”) of TrueBlue, Inc. (the “company,” “TrueBlue,” “we,” “us,” and “our”) are prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and rules and regulations of the Securities and Exchange Commission for interim financial information. Accordingly, certain information and footnote disclosures usually found in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. The financial statements reflect all adjustments which, in the opinion of management, are necessary to fairly state the financial statements for the interim periods presented. We follow the same accounting policies for preparing both quarterly and annual financial statements.

The preparation of the financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. The severity, magnitude and duration, as well as the economic consequences of the the coronavirus (“COVID-19”) pandemic, are uncertain and difficult to predict. Therefore, our accounting estimates and assumptions might change materially in future periods.

These financial statements should be read in conjunction with the audited consolidated financial statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended December 27, 2020. The results of operations for the twenty-six weeks ended June 27, 2021 are not necessarily indicative of the results expected for the full fiscal year nor for any other fiscal period.

Reclassifications

Certain previously reported immaterial prior year amounts have been reclassified within current liabilities on our Consolidated Balance Sheets to conform to current year presentation. Additionally, we have separately presented deferred employer payroll taxes from prior period reported amounts within operating activities on our Consolidated Statements of Cash Flows.

Goodwill

We evaluate goodwill for impairment on an annual basis as of the first day of our fiscal second quarter, and whenever events or circumstances make it more likely than not that an impairment may have occurred. These events or circumstances could include a significant change in the business climate, legal factors, operating performance indicators, competition, client engagement, or sale or disposition of a significant portion of a reporting unit. We monitor the existence of potential impairment indicators throughout the fiscal year. We test for goodwill impairment at the reporting unit level. We consider our operating segments to be our reporting units for goodwill impairment testing. Our operating segments are PeopleReady, On-Site, Centerline, PeopleScout RPO, and PeopleScout MSP. The impairment test involves comparing the fair value of each reporting unit to its carrying value, including goodwill. Fair value reflects the price a market participant would be willing to pay in a potential sale of the reporting unit. If the fair value exceeds the carrying value, we conclude that no goodwill impairment has occurred. If the carrying value of the reporting unit exceeds its fair value, we recognize an impairment loss in an amount equal to the excess, not to exceed the carrying value of the goodwill.

Determining the fair value of a reporting unit involves the use of significant estimates and assumptions to evaluate the impact of operational and macroeconomic changes on each reporting unit. We estimate the fair value of each reporting unit using a weighted average of the income and market valuation approaches. The income approach applies a fair value methodology based on discounted cash flows. This analysis requires significant estimates and judgments, including estimation of future cash flows, which is dependent on internal forecasts, estimation of the long-term rate of growth for our business, estimation of the useful life over which cash flows will occur, and determination of our weighted average cost of capital, which is risk-adjusted to reflect the specific risk profile of the reporting unit being tested. We also apply a market approach, which identifies similar publicly traded companies and develops a correlation, referred to as a multiple, to apply to the operating results of the reporting units. The primary market multiples to which we compare are revenue and earnings before interest, taxes, depreciation, and amortization. The income and market approaches were equally weighted in our most recent annual impairment test. We base fair value estimates on assumptions we believe to be reasonable but that are unpredictable and inherently uncertain. Actual future results may differ from those estimates. We consider a reporting unit’s fair value to be substantially in excess of its carrying value at a 20% premium or greater.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Based on our 2021 annual impairment test, all of our reporting units’ fair values were substantially in excess of their respective carrying values. Accordingly, there was no impairment loss recognized during the twenty-six weeks ended June 27, 2021.

Recently adopted accounting standards

There were no new accounting pronouncements adopted during the period that had an impact on our financial statements.

Recently issued accounting pronouncements not yet adopted

There are no accounting pronouncements which have not yet been adopted that are expected to have a significant impact on our financial statements and related disclosures.

NOTE 2: FAIR VALUE MEASUREMENT

Assets measured at fair value on a recurring basis

Our assets measured at fair value on a recurring basis consisted of the following:


	June 27, 2021
(in thousands)	Total fair value		Quoted prices in active markets for identical assets (level 1)		Significant other observable inputs (level 2)		Significant unobservable inputs (level 3)
Cash and cash equivalents	$	105,234	$	105,234	$	—	$	—
Restricted cash and cash equivalents	54,436		54,436		—		—
Cash, cash equivalents and restricted cash (1)	$	159,670	$	159,670	$	—	$	—

Municipal debt securities	$	63,926	$	—	$	63,926	$	—
Corporate debt securities	75,014		—		75,014		—
Agency mortgage-backed securities	267		—		267		—
U.S. government and agency securities	1,095		—		1,095		—
Restricted investments classified as held-to-maturity (2)	$	140,302	$	—	$	140,302	$	—

Deferred compensation investments (3)	$	6,303	$	6,303	$	—	$	—


	December 27, 2020
(in thousands)	Total fair value		Quoted prices in active markets for identical assets (level 1)		Significant other observable inputs (level 2)		Significant unobservable inputs (level 3)
Cash and cash equivalents	$	62,507	$	62,507	$	—	$	—
Restricted cash and cash equivalents	56,105		56,105		—		—
Cash, cash equivalents and restricted cash (1)	$	118,612	$	118,612	$	—	$	—

Municipal debt securities	$	70,723	$	—	$	70,723	$	—
Corporate debt securities	85,937		—		85,937		—
Agency mortgage-backed securities	512		—		512		—
U.S. government and agency securities	1,124		—		1,124		—
Restricted investments classified as held-to-maturity (2)	$	158,296	$	—	$	158,296	$	—

Deferred compensation investments (3)	$	5,915	$	5,915	$	—	$	—

(1)Cash, cash equivalents and restricted cash include money market funds and deposits.

(2)Refer to Note 3: Restricted Cash and Investments for additional details on our held-to-maturity debt securities.

(3)Deferred compensation investments consist of mutual funds and money market funds. Refer to Note 3: Restricted Cash and Investments for additional details on these investments.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3: RESTRICTED CASH AND INVESTMENTS

The following is a summary of the carrying value of our restricted cash and investments:


(in thousands)	June 27, 2021		December 27, 2020
Cash collateral held by insurance carriers	$	26,922	$	26,025
Cash and cash equivalents held in Trust	26,344		29,410
Investments held in Trust	135,894		152,247
Deferred compensation investments	6,303		5,915
Company-owned life insurance policies	28,016		26,267
Other restricted cash and cash equivalents	1,170		670
Total restricted cash and investments	$	224,649	$	240,534

Held-to-maturity

Restricted cash and investments include collateral that has been provided or pledged to insurance carriers for workers’ compensation and state workers’ compensation programs. Our insurance carriers and certain state workers’ compensation programs require us to collateralize a portion of our workers’ compensation obligation. The collateral typically takes the form of cash and cash equivalents and highly rated investment grade securities, primarily in debt and asset-backed securities. The majority of our collateral obligations are held in a trust at the Bank of New York Mellon (“Trust”).

The amortized cost and estimated fair value of our held-to-maturity investments held in Trust, aggregated by investment category as of June 27, 2021 and December 27, 2020, were as follows:


	June 27, 2021
(in thousands)	Amortized cost		Gross unrealized gains		Gross unrealized losses		Fair value
Municipal debt securities	$	61,240	$	2,686	$	—	$	63,926
Corporate debt securities	73,396		1,809		(191)		75,014
Agency mortgage-backed securities	258		9		—		267
U.S. government and agency securities	1,000		95		—		1,095
Total held-to-maturity investments	$	135,894	$	4,599	$	(191)	$	140,302


	December 27, 2020
(in thousands)	Amortized cost		Gross unrealized gains		Gross unrealized losses		Fair value
Municipal debt securities	$	67,287	$	3,436	$	—	$	70,723
Corporate debt securities	83,467		2,511		(41)		85,937
Agency mortgage-backed securities	493		19		—		512
U.S. government and agency securities	1,000		124		—		1,124
Total held-to-maturity investments	$	152,247	$	6,090	$	(41)	$	158,296

The amortized cost and fair value by contractual maturity of our held-to-maturity investments are as follows:


	June 27, 2021
(in thousands)	Amortized cost		Fair value
Due in one year or less	$	21,607	$	21,826
Due after one year through five years	105,331		108,987
Due after five years through ten years	8,956		9,489
Total held-to-maturity investments	$	135,894	$	140,302

Actual maturities may differ from contractual maturities because the issuers of certain debt securities have the right to call or prepay their obligations without penalty. We have no significant concentrations of counterparties in our held-to-maturity investment portfolio.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Deferred compensation investments and company-owned life insurance policies

We hold mutual funds, money market funds and company-owned life insurance policies to support our deferred compensation liability. Unrealized gains and losses related to these investments still held at June 27, 2021 and June 28, 2020, included in selling, general and administrative expense on our Consolidated Statements of Operations and Comprehensive Income (Loss), were as follows:


	Thirteen weeks ended				Twenty-six weeks ended
(in thousands)	June 27, 2021		June 28, 2020		June 27, 2021		June 28, 2020
Unrealized gains (losses)	$	1,549	$	3,114	$	2,426	$	(1,727)

NOTE 4: SUPPLEMENTAL BALANCE SHEET INFORMATION

Accounts receivable allowance for credit losses

The activity related to the accounts receivable allowance for credit losses was as follows:


	Twenty-six weeks ended
(in thousands)	June 27, 2021		June 28, 2020
Beginning balance	$	2,921	$	4,288
Cumulative-effect adjustment (1)	—		524
Current period provision	2,094		5,923
Write-offs	(1,176)		(3,053)
Foreign currency translation	4		(26)
Ending balance	$	3,843	$	7,656

(1)As a result of our adoption of the accounting standard for credit losses, we recognized a cumulative-effect adjustment to our accounts receivable allowance for credit losses of $0.5 million as of the beginning of the first quarter of 2020.

Prepaid expenses and other current assets


(in thousands)	June 27, 2021		December 27, 2020
Prepaid software agreements	$	7,658	$	8,643
Other prepaid expenses	7,320		8,631
Other current assets	9,461		8,863
Prepaid expenses and other current assets	$	24,439	$	26,137

Accrued wages and benefits


(in thousands)	June 27, 2021		December 27, 2020
Deferred employer payroll tax (1)	$	58,230	$	55,420
Other accrued wages and benefits	78,445		67,237
Accrued wages and benefits	$	136,675	$	122,657

(1) On March 27, 2020, the U.S. government enacted the Coronavirus Aid, Relief and Economic Security Act, which among other things, provided employer payroll tax credits for wages paid to employees who were unable to work during the COVID-19 outbreak. Additionally, we were allowed to delay payments for the employer portion of social security taxes (6.2% of taxable wages) incurred between March 27, 2020 and December 31, 2020, for both our temporary associates and permanent employees. We anticipate the deferred amount will be paid by September 15, 2021.

NOTE 5: WORKERS’ COMPENSATION INSURANCE AND RESERVES

We provide workers’ compensation insurance for our associates and permanent employees. The majority of our current workers’ compensation insurance policies cover claims for a particular event above a $2.0 million deductible limit, on a “per occurrence” basis. This results in our being substantially self-insured.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Our workers’ compensation reserve for claims below the deductible limit is discounted to its estimated net present value using discount rates based on average returns of “risk-free” U.S. Treasury instruments available during the year in which the liability was incurred. The weighted average discount rate was 1.7% and 1.8% at June 27, 2021 and December 27, 2020, respectively. Payments made against self-insured claims are made over a weighted average period of approximately 5.5 years as of June 27, 2021.

The following table presents a reconciliation of the undiscounted workers’ compensation reserve to the discounted workers’ compensation reserve for the periods presented:


(in thousands)	June 27, 2021		December 27, 2020
Undiscounted workers’ compensation reserve	$	271,837	$	273,502
Less discount on workers’ compensation reserve	16,942		18,009
Workers’ compensation reserve, net of discount	254,895		255,493
Less current portion	60,032		66,007
Long-term portion	$	194,863	$	189,486

Payments made against self-insured claims were $22.4 million and $28.0 million for the twenty-six weeks ended June 27, 2021 and June 28, 2020, respectively.

Our workers’ compensation reserve includes estimated expenses related to claims above our self-insured limits (“excess claims”), and we record a corresponding receivable for the insurance coverage on excess claims based on the contractual policy agreements we have with insurance carriers. We discount this reserve and corresponding receivable to its estimated net present value using the discount rates based on average returns of “risk-free” U.S. Treasury instruments available during the year in which the liability was incurred. At June 27, 2021 and December 27, 2020, the weighted average rate was 1.4% and 1.3%, respectively. The claim payments are made and the corresponding reimbursements from our insurance carriers are received over an estimated weighted average period of approximately 17 years. The discounted workers’ compensation reserve for excess claims was $58.6 million and $54.0 million, as of June 27, 2021 and December 27, 2020, respectively. The discounted receivables from insurance companies, net of valuation allowance, were $57.2 million and $52.9 million as of June 27, 2021 and December 27, 2020, respectively.

Workers’ compensation cost consists primarily of changes in self-insurance reserves net of changes in discount, monopolistic jurisdictions’ premiums, insurance premiums and other miscellaneous expenses. Workers’ compensation cost of $9.3 million and $9.2 million was recorded in cost of services on our Consolidated Statements of Operations and Comprehensive Income (Loss) for the thirteen weeks ended June 27, 2021 and June 28, 2020, respectively, and $19.4 million and $23.5 million for the twenty-six weeks ended June 27, 2021 and June 28, 2020, respectively.

NOTE 6: COMMITMENTS AND CONTINGENCIES

Workers’ compensation commitments

We have provided our insurance carriers and certain states with commitments in the form and amounts listed below:


(in thousands)	June 27, 2021		December 27, 2020
Cash collateral held by workers’ compensation insurance carriers	$	22,609	$	22,253
Cash and cash equivalents held in Trust	26,344		29,410
Investments held in Trust	135,894		152,247
Letters of credit (1)	6,095		6,095
Surety bonds (2)	20,831		20,616
Total collateral commitments	$	211,773	$	230,621

(1)We have agreements with certain financial institutions to issue letters of credit as collateral.

(2)Our surety bonds are issued by independent insurance companies on our behalf and bear annual fees based on a percentage of the bond, which are determined by each independent surety carrier. These fees do not exceed 2.0% of the bond amount, subject to a minimum charge. The terms of these bonds are subject to review and renewal every one to four years and most bonds can be canceled by the sureties with as little as 60 days’ notice.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Legal contingencies and developments

We are involved in various proceedings arising in the normal course of conducting business. We believe the liabilities included in our financial statements reflect the probable loss that can be reasonably estimated. The amounts recorded are immaterial and resolution of those proceedings are not expected to have a material effect on our results of operations, financial condition or cash flows.

NOTE 7: SHAREHOLDERS’ EQUITY

Changes in the balance of each component of shareholders’ equity during the reporting periods were as follows:


	Thirteen weeks ended				Twenty-six weeks ended
(in thousands)	June 27, 2021		June 28, 2020		June 27, 2021		June 28, 2020

Common stock shares
Beginning balance	35,474		36,128		35,493		38,593
Purchases and retirement of common stock	—		—		—		(2,930)
Net issuance under equity plans, including tax benefits	6		(76)		(17)		339
Stock-based compensation	30		—		34		50
Ending balance	35,510		36,052		35,510		36,052

Common stock amount
Beginning balance	$	1	$	1	$	1	$	1
Current period activity	—		—		—		—
Ending balance	1		1		1		1

Retained earnings
Beginning balance	459,958		435,804		452,017		639,210
Net income (loss)	15,884		(8,168)		22,782		(158,662)
Purchases and retirement of common stock (1)	—		—		—		(52,346)
Net issuance under equity plans, including tax benefits	152		51		(2,148)		(1,420)
Stock-based compensation	3,573		2,838		6,916		4,345
Change in accounting standard cumulative-effect adjustment (2)	—		—		—		(602)
Ending balance	479,567		430,525		479,567		430,525

Accumulated other comprehensive loss
Beginning balance, net of tax	(14,332)		(19,863)		(14,828)		(13,238)
Foreign currency translation adjustment	(6)		2,098		490		(4,527)
Ending balance, net of tax	(14,338)		(17,765)		(14,338)		(17,765)

Total shareholders’ equity ending balance	$	465,230	$	412,761	$	465,230	$	412,761

(1)Under applicable Washington State law, shares purchased are not displayed separately as treasury stock on our Consolidated Balance Sheets and are treated as authorized but unissued shares. It is our accounting policy to first record these purchases as a reduction to our common stock account. Once the common stock account has been reduced to a nominal balance, remaining purchases are recorded as a reduction to our retained earnings. Furthermore, activity in our common stock account related to stock-based compensation is also recorded to retained earnings until such time as the reduction to retained earnings due to stock repurchases has been recovered.

(2)As a result of our adoption of the accounting standard for credit losses, we recognized a cumulative-effect adjustment to retained earnings of $0.6 million in the first quarter of 2020.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8: INCOME TAXES

Our income tax provision or benefit for interim periods is determined using an estimate of our annual effective tax rate, adjusted for discrete items, if any, that are taken into account in the relevant period. Each quarter we update our estimate of the annual effective tax rate and, if our estimated tax rate changes, we make a cumulative adjustment. Our quarterly tax provision and quarterly estimate of our annual effective tax rate are subject to variation due to several factors, including variability in accurately predicting our full year pre-tax income and loss by jurisdiction, tax credits, government audit developments, changes in laws, regulations and administrative practices, and relative changes in expenses or losses for which tax benefits are not recognized. Additionally, our effective tax rate can be more or less volatile based on the amount of pre-tax income. For example, the impact of discrete items, tax credits, and non-deductible expenses on our effective tax rate is greater when our pre-tax income is lower.

Our effective income tax rate for the twenty-six weeks ended June 27, 2021 was 13.9%. The difference between the statutory federal income tax rate of 21% and our effective tax rate results primarily from the federal Work Opportunity Tax Credit (“WOTC”). WOTC is designed to encourage employers to hire workers from certain targeted groups with higher than average unemployment rates. Other differences between the statutory federal income tax rate result from state and foreign income taxes, certain non-deductible and non-taxable items, tax effects of stock-based compensation and additional benefit from the Coronavirus Aid, Relief and Economic Security Act of 2020.

NOTE 9: NET INCOME (LOSS) PER SHARE

Diluted common shares were calculated as follows:


	Thirteen weeks ended				Twenty-six weeks ended
(in thousands, except per share data)	June 27, 2021		June 28, 2020		June 27, 2021		June 28, 2020
Net income (loss)	$	15,884	$	(8,168)	$	22,782	$	(158,662)

Weighted average number of common shares used in basic net income (loss) per common share	34,818		35,077		34,746		36,166
Dilutive effect of non-vested restricted stock	534		—		459		—
Weighted average number of common shares used in diluted net income (loss) per common share	35,352		35,077		35,205		36,166

Net income (loss) per common share:
Basic	$	0.46	$	(0.23)	$	0.66	$	(4.39)
Diluted	$	0.45	$	(0.23)	$	0.65	$	(4.39)

Anti-dilutive shares	26		580		54		565

NOTE 10: SEGMENT INFORMATION

Our operating segments and reportable segments are described below:

Our PeopleReady reportable segment provides blue-collar, contingent staffing through the PeopleReady operating segment. PeopleReady provides on-demand and skilled labor in a broad range of industries that include construction, manufacturing and logistics, warehousing and distribution, retail, waste and recycling, energy, hospitality, and general labor.

Our PeopleManagement reportable segment provides contingent labor and outsourced industrial workforce solutions, primarily on-site at the client’s facility, through the following operating segments, which we have aggregated into one reportable segment in accordance with U.S. GAAP:

•On-Site: On-site management and recruitment for the contingent industrial workforce of manufacturing, warehouse, and distribution facilities; and

•Centerline: Recruitment and management of contingent and dedicated commercial drivers to the transportation and distribution industries.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Our PeopleScout reportable segment provides high-volume, permanent employee recruitment process outsourcing, employer branding services and management of outsourced labor service providers through the following operating segments, which we have aggregated into one reportable segment in accordance with U.S. GAAP:

•PeopleScout RPO: Outsourced recruitment of permanent employees on behalf of clients and employer branding services; and

•PeopleScout MSP: Management of multiple third-party staffing vendors on behalf of clients.

The following table presents our revenue disaggregated by major source and segment and a reconciliation of segment revenue from services to total company revenue:


	Thirteen weeks ended				Twenty-six weeks ended
(in thousands)	June 27, 2021		June 28, 2020		June 27, 2021		June 28, 2020
Revenue from services:
Contingent staffing
PeopleReady	$	299,316	$	209,151	$	559,708	$	508,445
PeopleManagement	152,356		118,661		304,110		260,275
Human resource outsourcing
PeopleScout	64,283		31,132		110,843		84,476
Total company	$	515,955	$	358,944	$	974,661	$	853,196

The following table presents a reconciliation of segment profit to income (loss) before tax expense (benefit):


	Thirteen weeks ended				Twenty-six weeks ended
(in thousands)	June 27, 2021		June 28, 2020		June 27, 2021		June 28, 2020
Segment profit (loss):
PeopleReady	$	18,437	$	633	$	30,297	$	8,288
PeopleManagement	3,221		1,803		6,337		1,489
PeopleScout	10,857		(2,782)		14,894		(274)
Total segment profit (loss)	32,515		(346)		51,528		9,503
Corporate unallocated	(7,307)		(4,929)		(12,926)		(10,138)
Work Opportunity Tax Credit processing fees	(30)		—		(165)		(135)
Amortization of software as a service assets	(646)		(565)		(1,319)		(1,117)

Goodwill and intangible asset impairment charge	—		—		—		(175,189)

Workforce reduction costs	(14)		(11,011)		(84)		(12,319)
COVID-19 government subsidies, net	2,296		3,104		4,039		3,104
Other benefits (costs)	(854)		(228)		(1,940)		5,905
Depreciation and amortization	(7,017)		(7,256)		(13,979)		(16,350)
Income (loss) from operations	18,943		(21,231)		25,154		(196,736)
Interest expense and other income, net	724		(412)		1,299		(149)
Income (loss) before tax expense (benefit)	$	19,667	$	(21,643)	$	26,453	$	(196,885)

Asset information by reportable segment is not presented as we do not manage our segments on a balance sheet basis.

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Item 2.			MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

COMMENT ON FORWARD LOOKING STATEMENTS

Certain statements in this Form 10-Q, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives and expected operating results, the impact of and our ongoing response to COVID-19, and the assumptions upon which those statements are based, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements involve risks and uncertainties, and future events and circumstances could differ significantly from those anticipated in the forward-looking statements. These forward-looking statements generally are identified by the words “believe,” “project,” “expect,” “anticipate,” “estimate,” “intend,” “strategy,” “future,” “opportunity,” “goal,” “plan,” “may,” “should,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties, which may cause actual results to differ materially from those expressed or implied in our forward-looking statements, including the risks and uncertainties described in “Management’s Discussion and Analysis of Financial Condition and results of Operations” (Part I, Item 2 of this Form 10-Q),“Quantitative and Qualitative Disclosures about Market Risk” (Part I, Item 3 of this Form 10-Q), and “Risk Factors” (Part II, Item 1A of this Form 10-Q). We undertake no duty to update or revise publicly any of the forward-looking statements after the date of this report or to conform such statements to actual results or to changes in our expectations, whether because of new information, future events, or otherwise.

OVERVIEW

TrueBlue, Inc. (the “company,” “TrueBlue,” “we,” “us” and “our”) is a leading provider of specialized workforce solutions that help our clients improve productivity and grow their businesses. Our operations are managed as three business segments: PeopleReady, PeopleManagement and PeopleScout. Our PeopleReady segment offers on-demand, industrial staffing; our PeopleManagement segment offers contingent, on-site industrial staffing and commercial driver services; and our PeopleScout segment offers recruitment process outsourcing (“RPO”) and managed service provider (“MSP”) solutions. See Note 10: Segment Information, to our consolidated financial statements found in Item 1 of this Quarterly Report on Form 10-Q, for additional details on our operating segments and reportable segments.

The COVID-19 pandemic

Beginning in early 2020, the coronavirus (“COVID-19”) outbreak, characterized as a pandemic by the World Health Organization on March 11, 2020, led to a series of significant economic disruptions globally. Throughout the pandemic, our business has remained open and we have continued to provide key services to essential businesses and other businesses as COVID-19 restrictions were lifted. Nevertheless, the preventative measures and individual precautions taken to help curb the spread of COVID-19, and the resulting negative impact on economic activity, continue to have an adverse impact on client demand for our services, availability of qualified associates and our business results. In early 2020, we implemented comprehensive measures across our businesses to keep our associates, employees and clients healthy and safe. We remain committed to prioritizing the health and well-being of our associates, employees and clients. Our support center employees and management team have successfully operated the business with our work-from-home arrangements. We plan to return to our support center offices, on a limited basis, in the fall of 2021.

In our two largest markets, the United States of America (“U.S.”) and Canada, vaccinations continue to be a top priority and are being supported by governmental programs. As of July 22, 2021, approximately 49% of the U.S. and 53% of the Canadian populations have been fully vaccinated. While the vaccination programs have helped to reopen these markets, we continue to monitor the pandemic’s evolution closely. Despite uneven recovery in certain markets and industries, we are seeing growth in new client wins and higher existing client volumes, particularly in those markets and industries hit hardest by COVID-19 in 2020. In addition, our continued focus on efficiently managing costs while investing in digital strategies and sales resources has allowed us to accelerate our strategic priorities and emerge stronger as the economic recovery continues.

Our strong balance sheet and operational flexibility have helped us successfully manage through the ongoing impacts of the COVID-19 pandemic, while protecting our cash flow and liquidity. For additional discussion on the uncertainties and business risks associated with COVID-19, refer to “Risk Factors” in Part II, Item 1A of this Form 10-Q.

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MANAGEMENT’S DISCUSSION AND ANALYSIS

Second quarter of 2021 highlights

Revenue from services

Total company revenue grew 43.7% to $516.0 million for the thirteen weeks ended June 27, 2021, compared to the same period in the prior year. The increase was due to the recovery of client demand for our services, which experienced a significant drop in the prior year due to the negative impact of the COVID-19 pandemic. Revenue trends have also improved compared to the fiscal first quarter of 2021, which had revenue declines of 7.2%, compared to the same period in the prior year. This improvement is primarily driven by improving volumes from existing clients, including clients in industries that were disproportionately impacted by COVID-19, as well as new client wins.

•PeopleReady, our largest segment, experienced revenue growth of 43.1% for the thirteen weeks ended June 27, 2021, compared to the same period in the prior year. PeopleReady provides a wide range of staffing solutions for on-demand contingent general and skilled labor. PeopleReady has seen improved revenue trends across most geographies and industries, especially those in industries that were hit the hardest by COVID-19, such as construction, transportation, manufacturing and hospitality. However, the supply of workers is a challenge in certain markets that we believe have been temporarily impacted by government responses to COVID-19, which include stimulus checks, elevated federal unemployment benefits and other direct payments to individuals. As compared to our other segments, PeopleReady experienced the most pressure on the available supply of workers, primarily due to a lower average wage, the temporary nature of the positions and the shorter notice period we receive to fill open positions. While some states began opting out of the federal unemployment benefits in late June, the majority of the recipients of these benefits live in states where the program is not set to expire until September 6, 2021.

•PeopleManagement, our lowest margin segment, experienced revenue growth of 28.4% for the thirteen weeks ended June 27, 2021, compared to the same period in the prior year. PeopleManagement supplies an outsourced workforce that involves multi-year, multi-million dollar on-site and driver relationships. PeopleManagement revenue growth was driven by an increase in volumes from existing clients as well as new client wins. While we have seen some pressure on the supply of workers in certain markets, the longer-term nature of our employment relationships and the advance notice we receive to fill open positions within our PeopleManagement segment have prevented the lack of supply of workers from having a meaningful impact on our existing business. However, the supply of workers has acted as a constraint on near-term growth.

•PeopleScout, our highest margin segment, experienced a revenue growth of 106.5% for the thirteen weeks ended June 27, 2021, compared to the same period in the prior year. PeopleScout offers RPO and MSP solutions. PeopleScout has seen a strong recovery in volumes from existing customers, especially those in industries that were hit the hardest by COVID-19, as well as new client wins.

Gross profit

Total company gross profit as a percentage of revenue for the thirteen weeks ended June 27, 2021 increased by 320 basis points to 26.4%, compared to 23.2% for the same period in the prior year. Our staffing businesses contributed 70 basis points of improvement, primarily attributable to a benefit of 80 basis points due to lower workers’ compensation expense as a result of a reduction to prior year reserves associated with favorable patterns in claim development. Our PeopleScout business contributed 250 basis points of the improvement, 80 basis points was due to workforce reduction costs incurred in Q2 2020, and the remaining 170 basis points was driven by operating leverage from higher volume in 2021.

Selling, general and administrative (“SG&A”) expense

Total company SG&A expense increased by $13.3 million to $110.5 million, or 21.4% of revenue for the thirteen weeks ended June 27, 2021, compared to $97.2 million, or 27.1% of revenue for the same period in the prior year. The prior period includes $8.0 million in workforce reduction costs incurred as a result of COVID-19, which represents 2.2% of revenue in the prior year. We have continued to balance cost discipline with preserving our operational strengths, which has positioned us well for growth as economic conditions continue to improve.

Income from operations

Total company income from operations was $18.9 million for the thirteen weeks ended June 27, 2021, compared to a loss from operations of $21.2 million for the same period in the prior year. The increase in income from operations was primarily due to improving revenue trends led by recovering industry performance, including those disproportionately impacted by COVID-19, a series of new client wins, expanding gross margin, and disciplined cost management.

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MANAGEMENT’S DISCUSSION AND ANALYSIS

Net income

Net income was $15.9 million, or $0.45 per diluted share for the thirteen weeks ended June 27, 2021, compared to a net loss of $8.2 million, or $0.23 per diluted share for the same period in the prior year. Net income for the thirteen weeks ended June 27, 2021 includes income tax expense of $3.8 million resulting in an effective tax rate of 19.2%, compared to a benefit of $13.5 million and a effective tax rate of 62.3% for the same period in the prior year. The difference between our statutory tax rates and our effective income tax rate results primarily from the federal Work Opportunity Tax Credit (“WOTC”) and the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”). The large decrease in rates when compared to the same period in the prior year was due to these favorable adjustments increasing our effective tax rate in the prior year when it was a benefit due to the loss from operations, and reducing our tax rate in the current year when it was an expense due to the income from operations. WOTC is designed to encourage employers to hire workers from certain targeted groups with higher than average unemployment rates. The CARES Act is an emergency economic aid package to help mitigate the impact of COVID-19. Among other things, the CARES Act provides certain changes to tax laws, including the ability to carry back losses to obtain refunds related to prior year tax returns where the federal tax rate was 35%.

Additional highlights

As of June 27, 2021, we are in a strong financial position with cash and cash equivalents of $105.2 million, no outstanding debt and $169.5 million available under the most restrictive covenant of our revolving credit agreement (“Revolving Credit Facility”, for total liquidity of $274.8 million.

RESULTS OF OPERATIONS

We report our business as three reportable segments described below and in Note 10: Segment Information, to our consolidated financial statements found in Item 1 of this Quarterly Report on Form 10-Q.

•PeopleReady provides access to qualified associates through a wide range of staffing solutions for on-demand contingent general and skilled labor. PeopleReady connects people with work in a broad range of industries that include construction, manufacturing and logistics, warehousing and distribution, waste and recycling, energy, retail and hospitality. As of December 27, 2020, we had a network of 629 branches across all 50 states, Canada and Puerto Rico. Complementing our branch network is our industry-leading mobile app, JobStackTM, which connects people with work 24/7. This creates a virtual exchange between our associates and clients, and allows our branch resources to expand their recruiting, sales and service delivery efforts. JobStack is competitively differentiating our services, expanding our reach into new demographics, and improving our service delivery and work order fill rates, as we embrace a digital future.

•PeopleManagement provides recruitment and on-site management of a facility’s contingent industrial workforce throughout the U.S., Canada and Puerto Rico. In comparison with PeopleReady, services are larger in scale and longer in duration, and dedicated service teams are located at the client’s facility. We provide scalable solutions to meet the volume requirements of labor-intensive manufacturing, distribution and fulfillment facilities. Our dedicated service teams work closely with on-site management as an integral part of the production and logistics process, managing all or a subset of the contingent labor for a facility or operational function. Our on-site staffing solutions provide large-scale sourcing, screening, recruiting and management of the contingent workforce at a client’s facility in order to achieve faster hiring, lower total workforce cost, increase safety and compliance, improve retention, create greater volume flexibility, and enhance strategic decision-making through robust reporting and analytics. Our On-Site operating segment includes our Staff Management | SMX and SIMOS Insourcing Solutions branded service offerings, which provide hourly and productivity-based (cost per unit) pricing options for industrial staffing solutions. Client contracts are generally multi year in duration. The productivity-based pricing leverages a strategically engineered on-site solution to incentivize performance improvements in cost, quality and on-time delivery using a fixed price-per-unit approach. Both hourly and productivity-based pricing are impacted by factors such as geography, volume, job type, and degree of recruiting difficulty.

PeopleManagement also provides dedicated and contingent commercial truck drivers to the transportation and distribution industries through our Centerline Drivers (“Centerline”) brand. Centerline delivers drivers specifically matched to each client’s needs, allowing them to improve productivity, control costs, ensure compliance, and deliver improved service.

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MANAGEMENT’S DISCUSSION AND ANALYSIS

•PeopleScout offers RPO and MSP solutions to a wide variety of industries and geographies, primarily in the U.S., Canada, the United Kingdom and Australia. PeopleScout provides RPO services that manage talent solutions spanning the global economy and talent advisory capabilities supporting total workforce needs. We are recognized as an industry leader for RPO services. Our solution is highly scalable and flexible, which allows for outsourcing of all or a subset of skill categories across a series of recruitment, hiring and onboarding steps. Our solution delivers improved talent quality and candidate experience, faster hiring, increased scalability, lower cost of recruitment, greater flexibility, and increased compliance. Our clients outsource the recruitment process to PeopleScout in all major industries and jobs. We leverage our proprietary technology platform (AffinixTM) for sourcing, screening and delivering a permanent workforce, along with dedicated service delivery teams to work as an integrated partner with our clients. Affinix uses artificial intelligence and machine learning to search the web and source candidates, which means we can create the first slate of candidates for a job posting within minutes rather than days. Client contracts are generally multi year in duration and pricing is typically composed of a fee for each hire and talent consulting fees. Pricing is impacted by factors such as geography, volume, job type, degree of recruiting difficulty, and the scope of outsourced recruitment and employer branding services included.

PeopleScout also includes our MSP business, which manages our clients’ contingent labor programs including vendor selection, performance management, compliance monitoring and risk management. As the client’s exclusive MSP, we have dedicated service delivery teams which work as an integrated partner with our clients to increase the productivity of their contingent workforce program.

Total company results

The following table presents selected financial data:


	Thirteen weeks ended								Twenty-six weeks ended
(in thousands, except percentages and per share data)	Jun 27, 2021		% of revenue		Jun 28, 2020		% of revenue			Jun 27, 2021		% of revenue		Jun 28, 2020		% of revenue
Revenue from services	$	515,955			$	358,944				$	974,661			$	853,196

Gross profit	$	136,468	26.4	%	$	83,225	23.2	%		$	247,042	25.3	%	$	209,384	24.5	%
Selling, general and administrative expense	110,508		21.4	%	97,200		27.1	%		207,909		21.3	%	214,581		25.2	%
Depreciation and amortization	7,017		1.4	%	7,256		2.0	%		13,979		1.4	%	16,350		1.9	%
Goodwill and intangible asset impairment charge	—				—					—				175,189
Income (loss) from operations	18,943		3.7	%	(21,231)		(5.9)	%		25,154		2.6	%	(196,736)		(23.1)	%
Interest expense and other income, net	724				(412)					1,299				(149)
Income (loss) before tax expense (benefit)	19,667				(21,643)					26,453				(196,885)
Income tax expense (benefit)	3,783				(13,475)					3,671				(38,223)
Net income (loss)	$	15,884	3.1	%	$	(8,168)	(2.3)	%		$	22,782	2.3	%	$	(158,662)	(18.6)	%

Net income (loss) per diluted share	$	0.45			$	(0.23)				$	0.65			$	(4.39)

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MANAGEMENT’S DISCUSSION AND ANALYSIS

Revenue from services

Revenue from services by reportable segment was as follows:


	Thirteen weeks ended										Twenty-six weeks ended
(in thousands, except percentages)	Jun 27, 2021		Growth %		Segment % of total		Jun 28, 2020		Segment % of total		Jun 27, 2021		Growth %		Segment % of total		Jun 28, 2020		Segment % of total
Revenue from services:
PeopleReady	$	299,316	43.1	%	58.0	%	$	209,151	58.2	%	$	559,708	10.1	%	57.4	%	$	508,445	59.6	%
PeopleManagement	152,356		28.4		29.5		118,661		33.1		304,110		16.8		31.2		260,275		30.5
PeopleScout	64,283		106.5		12.5		31,132		8.7		110,843		31.2		11.4		84,476		9.9
Total company	$	515,955	43.7	%	100.0	%	$	358,944	100.0	%	$	974,661	14.2	%	100.0	%	$	853,196	100.0	%

Our PeopleReady and PeopleManagement services supply contingent workforce solutions to minimize the cost and effort of hiring and managing permanent employees. This allows for a rapid response to uncertainty in business conditions through the ability to replace absent employees, fill new positions, and convert fixed or permanent labor costs to variable costs.

Our PeopleScout services involve transitioning various functions handled by internal human resources and labor procurement on a permanent or project basis. Human resource departments are faced with increasingly complex operational and regulatory requirements, increased candidate expectations, an expanding talent technology landscape, and pressure to achieve efficiencies, which increase the need to migrate non-core functions to outsourced providers like PeopleScout. PeopleScout can more effectively find and engage high-quality talent, leverage talent acquisition technology, and scale their talent acquisition function to keep pace with changing business needs.

For these reasons, client demand for contingent workforce solutions and outsourced recruiting services are dependent on the overall strength of the economy, labor market and trends in workforce flexibility.

Total company revenue grew 43.7% to $516.0 million for the thirteen weeks ended June 27, 2021, and grew 14.2% to $974.7 million for the twenty-six weeks ended June 27, 2021, compared to the same periods in the prior year, respectively. The growth was due to a recovery in client demand for our services, which had experienced a significant drop in the prior year due to the negative impact the COVID-19 pandemic had on our business. Revenue trends have also improved compared to the fiscal first quarter of 2021, which had a revenue decline of 7.2%, compared to the same period in the prior year. This improvement is primarily driven by improving volumes from existing clients, including clients in industries that were disproportionately impacted by COVID-19, as well as new client wins.

PeopleReady

PeopleReady revenue grew to $299.3 million for the thirteen weeks ended June 27, 2021, a 43.1% increase compared to the same period in the prior year, and grew to $559.7 million for the twenty-six weeks ended June 27, 2021, a 10.1% increase compared to the same period in the prior year. PeopleReady has seen improved revenue trends across most geographies and industries, especially those in industries that were hit the hardest by COVID-19, such as construction, transportation, manufacturing and hospitality. The supply of workers is a challenge in certain markets, which we believe is temporarily impacted by government responses to COVID-19, which include stimulus checks, elevated federal unemployment benefits and other direct payments to individuals. While some states began opting out of these unemployment benefits in late June, the majority of the recipients live in states where the program is not set to expire until September 6, 2021. Revenue trends have improved compared to the fiscal first quarter of 2021, which had revenue declines of 13.0%, compared to the same period in the prior year.

We believe the revenue growth has been supported by the use of our industry-leading JobStack mobile app that digitally connects workers with jobs. During the second quarter of 2021, PeopleReady dispatched approximately 788,000 shifts via JobStack and achieved a digital fill rate of 58%, an improvement of five percentage points compared to the same period in the prior year. We are focused on encouraging clients to become JobStack heavy client users, which we define as clients with 50 or more touches on JobStack per month. Heavy client users have consistently posted better year-over-year growth rates compared to other PeopleReady clients. Our heavy client user mix increased from 30% of PeopleReady’s U.S. on-demand business for June 2020, to 46% in June 2021.

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PeopleManagement

PeopleManagement revenue grew to $152.4 million for the thirteen weeks ended June 27, 2021, a 28.4% increase compared to the same period in the prior year, and grew to $304.1 million for the twenty-six weeks ended June 27, 2021, a 16.8% increase compared to the same period in the prior year. The revenue growth was driven by new client wins and continued increase in volumes from existing clients. Revenue trends have improved compared to the fiscal first quarter of 2021, which had revenue growth of 7.2%, compared to the same period in the prior year. This improvement in the second quarter was broad-based across most of the industries we serve.

PeopleScout

PeopleScout revenue grew to $64.3 million for the thirteen weeks ended June 27, 2021, a 106.5% increase compared to the same period in the prior year, and grew to $110.8 million for the twenty-six weeks ended June 27, 2021, a 31.2% increase compared to the same period in the prior year. The revenue growth was primarily due to a strong recovery in volume from existing customers, especially those in industries hit hardest by COVID-19, such as travel and leisure, as well as new client wins. Revenue trends for the business as a whole have improved compared to the fiscal first quarter of 2021, which had a revenue decline of 12.7%, compared to the same period in the prior year.

Gross profit

Gross profit was as follows:


	Thirteen weeks ended						Twenty-six weeks ended
(in thousands, except percentages)	Jun 27, 2021			Jun 28, 2020			Jun 27, 2021			Jun 28, 2020
Gross profit	$	136,468		$	83,225		$	247,042		$	209,384
Percentage of revenue	26.4		%	23.2		%	25.3		%	24.5		%

Gross profit as a percentage of revenue grew 320 basis points to 26.4% for the thirteen weeks ended June 27, 2021, compared to 23.2% for the same period in the prior year. Our staffing businesses contributed 70 basis points of improvement, primarily due to a benefit of 80 basis points from lower workers’ compensation expense as a result of a reduction to prior year reserves largely associated with favorable patterns in claim development. Our PeopleScout business contributed 250 basis points of the improvement, 80 basis points was due to workforce reduction costs incurred in the prior year, and the remaining 170 basis points was driven by operating leverage from higher volume in 2021.

Gross profit as a percentage of revenue grew 80 basis points to 25.3% for the twenty-six weeks ended June 27, 2021, compared to 24.5% for the same period in the prior year. Our staffing businesses contributed 40 basis points of compression. A non-recurring benefit in the prior year related to a reduction in expected costs to comply with the Affordable Care Act created 70 basis points of compression. This compression was partially offset by 30 basis points of benefit due to lower workers compensation expense as a result of a reduction to prior year reserves largely associated with favorable patterns in claim development. Our PeopleScout business more than offset this margin compression with an improvement of approximately 120 basis points, with 40 basis points of benefit due to workforce reduction costs incurred in the prior year, and the remaining 80 basis points of benefit driven by operating leverage from higher volumes in 2021.

SG&A expense

SG&A expense was as follows:


	Thirteen weeks ended						Twenty-six weeks ended
(in thousands, except percentages)	Jun 27, 2021			Jun 28, 2020			Jun 27, 2021			Jun 28, 2020
Selling, general and administrative expense	$	110,508		$	97,200		$	207,909		$	214,581
Percentage of revenue	21.4		%	27.1		%	21.3		%	25.2		%

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MANAGEMENT’S DISCUSSION AND ANALYSIS

Total company SG&A expense increased by $13.3 million to $110.5 million, or 21.4% of revenue for the thirteen weeks ended June 27, 2021, compared to $97.2 million, or 27.1% of revenue for the same period in the prior year. Total company SG&A expense decreased by $6.7 million to $207.9 million, or 21.3% of revenue for the twenty-six weeks ended June 27, 2021, compared to $214.6 million, or 25.2% of revenue for the same period in the prior year. The prior periods include workforce reduction costs incurred as a result of COVID-19 of $8.0 million and $8.8 million for the thirteen and twenty-six weeks ended June 28, 2020, respectively, which represented 2.2% and 1.0% of revenue in the prior year, respectively. We took steps during fiscal 2020 to reduce SG&A expense while preserving our operational strengths, to ensure the business was well-positioned for growth as economic conditions improved. Our focus on efficiently managing costs while ensuring we continue to invest in sales resources and digital strategies has allowed us to accelerate our strategic priorities and emerge stronger as the economy continues to recover.

Depreciation and amortization

Depreciation and amortization was as follows:


	Thirteen weeks ended						Twenty-six weeks ended
(in thousands, except percentages)	Jun 27, 2021			Jun 28, 2020			Jun 27, 2021			Jun 28, 2020
Depreciation and amortization	$	7,017		$	7,256		$	13,979		$	16,350
Percentage of revenue	1.4		%	2.0		%	1.4		%	1.9		%

Depreciation and amortization decreased for the thirteen and twenty-six weeks ended June 27, 2021 compared to the same period in the prior year, respectively, primarily due to the impairment to our acquired client relationships intangible assets of $34.7 million in the fiscal first quarter of 2020, which resulted in a decline in amortization expense.

Goodwill and intangible asset impairment charge

Goodwill and intangible asset impairment charge was as follows:


	Thirteen weeks ended				Twenty-six weeks ended
(in thousands, except percentages)	Jun 27, 2021		Jun 28, 2020		Jun 27, 2021		Jun 28, 2020
Goodwill and intangible asset impairment charge	$	—	$	—	$	—	$	175,189

As a result of the decrease in demand for our services primarily due to the economic impact caused by COVID-19, we lowered our future expectations, which was the primary trigger of an impairment of our goodwill and acquired client relationships intangible assets recorded in the twenty-six weeks ended June 28, 2020. As a result of our interim impairment test in the fiscal first quarter of 2020, we concluded that the carrying amounts of goodwill for PeopleScout RPO, PeopleScout MSP and PeopleManagement On-Site reporting units exceeded their implied fair values and we recorded a non-cash impairment loss of $140.5 million. The total goodwill carrying value of $45.9 million for PeopleManagement On-Site reporting unit was fully impaired. The goodwill impairment charge for PeopleScout RPO and PeopleScout MSP was $92.2 million and $2.4 million, respectively. The impairment to our acquired client relationships intangible assets for our PeopleScout RPO and PeopleManagement On-Site reporting units was $34.7 million.

Income taxes

The income tax expense and the effective income tax rate were as follows:


	Thirteen weeks ended						Twenty-six weeks ended
(in thousands, except percentages)	Jun 27, 2021			Jun 28, 2020			Jun 27, 2021			Jun 28, 2020
Income tax expense (benefit)	$	3,783		$	(13,475)		$	3,671		$	(38,223)
Effective income tax rate	19.2		%	62.3		%	13.9		%	19.4		%

Our tax provision and our effective tax rate are subject to variation due to several factors, including variability in accurately predicting our full year pre-tax income and loss by jurisdiction, tax credits, government audit developments, changes in laws, regulations and administrative practices, and relative changes of expenses or losses for which tax benefits are not recognized.

Additionally, our effective tax rate can be more or less volatile based on the amount of pre-tax income and loss. For example, the impact of discrete items, tax credits and non-deductible expenses on our effective tax rate is greater when our pre-tax income or loss is lower.

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Table of Contents


MANAGEMENT’S DISCUSSION AND ANALYSIS

The items creating a difference between income taxes computed at the statutory federal income tax rate and income taxes reported on the Consolidated Statements of Operations and Comprehensive Income (Loss) are as follows:


	Thirteen weeks ended						Twenty-six weeks ended
(in thousands, except percentages)	Jun 27, 2021		%	Jun 28, 2020		%	Jun 27, 2021		%	Jun 28, 2020		%
Income (loss) before tax expense (benefit)	$	19,667		$	(21,643)		$	26,453		$	(196,885)

Federal income tax expense (benefit) at statutory rate	$	4,130	21.0%	$	(4,545)	21.0%	$	5,555	21.0%	$	(41,346)	21.0%
Increase (decrease) resulting from:
State income taxes, net of federal benefit	991		5.0	(1,644)		7.6	1,279		4.8	(9,952)		5.1
Non-deductible goodwill impairment charge			—			—	—		—	21,849		(11.1)
CARES Act	(574)		(2.9)	(3,595)		16.6	(438)		(1.7)	(5,698)		2.9
WOTC and other tax credits, net	(669)		(3.4)	(3,905)		18.0	(3,406)		(12.9)	(3,982)		2.0
Non-deductible and non-taxable items	88		0.4	95